Renovating Your Investment Property

Renovating your investment property offers the exciting promise of improving your asset value and overall wealth. Before you start, consider both the benefits and potential downsides, as well as the logistics involved in getting the project underway.

Benefits of Renovating

Rental Income:

Renovations may allow you to charge higher rent once the work is complete. It can also attract renters who are willing to stay longer, leading to more income stability.

Maintenance Expenses:

A property that has deteriorated will likely generate more maintenance requests from the renter. Renovating before a tenancy starts means fewer maintenance requests, reducing your ongoing costs.

Property Value:

The property’s value may increase, leading to more capital growth. This increase in value could help you build more equity, which you may then leverage for further investment.

Potential Downsides of Renovating

Cost:

Large renovations may require the property to stay vacant during the project, meaning you won’t receive rental income for that period. Renovations often have time blowouts, so you may need to account for a longer period of no income. Additionally, building costs can be unpredictable, which might dent your bottom line. Be cautious not to overcapitalise, as the renovation cost may not always reflect in the post-renovation value or rental income.

Regulations:

Be mindful of any legal requirements and obligations for your renter, such as notice periods. They may need to find alternative accommodation during construction. Ensure you adhere to these requirements. You’ll also need to follow building and structural regulations. It’s important to engage professionals and consult with your local government about permits and other legal matters.

If you decide to proceed with a renovation, consider the following logistics:

• Create a budget based on actual quotes, but be prepared for unexpected costs.
• Plan your funding in advance. If you seek finance, ensure your funds are secured before starting. Applying for finance mid-renovation can be challenging.
• Carefully select your tradespeople. Get multiple quotes, and remember that the cheapest option is not always the best.
• Prioritise areas that need improvement before tackling the nice-to-haves.

Before starting any improvements, it’s wise to consider what actually needs to be done versus what is nice to have. Sometimes, just making repairs and sprucing up existing features will improve the property’s value and rental income, without the risk of overcapitalising.

Renovating Your Investment Property

If you’re thinking about renovating your investment property and need advice regarding your obligations to your renter, feel free to reach out to enquiries@livingmelbourne.com.au